OCTOBER 16, 2002
SUBJECT: CONSTRUCTION INSURANCE BROKERAGE SERVICES
ACTION: AWARD A CONTRACT TO AON RISK SERVICES,
INCORPORATED FOR CONSTRUCTION INSURANCE
Authorize the Chief Executive Officer to award a five year firm-fixed price contract,
Contract No. PS-0532-1235, to Aon Risk Services, Incorporated for Construction
Insurance Brokerage Services in an amount not to exceed $1,079,819 effective
November 1, 2002.
The MTA will be constructing several major transportation corridor projects in the greater Los Angeles area. The corridor projects include but are not limited to:
A new light rail system from Union Station (Downtown Los Angeles) to East
A light rail system that will partially utilize an existing right-of-way, from
Downtown Los Angeles to Culver City
Two dedicated bus rapid transit corridors; one in the San Fernando Valley and one in the Mid-City/Wilshire area
In order to provide a comprehensive insurance program that will provide desired coverages and coverage limits, the MTA is procuring the services of a qualified insurance broker/administrator to implement a Rolling Wrap-Up Insurance Program for these transit construction project(s).
The contract will consist of Phase 1, Brokerage of Insurance Coverages and Phase 2,
Implementation and administration of the Rolling Wrap-Up Insurance Program. The contract is divided into two phases due to challenges posed by the MTA loss experience on Segments II and III (Metro Red Line), and by insurance market conditions.
MTA loss experience on Segments II, III
The MTA insured construction activity for Segments II and III (Metro Red Line) through an Owner Controlled Insurance Program (OCIP). In the course of construction, the MTA suffered various large-magnitude losses such as the
Hollywood Blvd. subsidence loss, which placed the MTA’s loss experience over and above the expected frequency and severity of losses associated with a construction project of this magnitude. In addition, litigation that resulted from a dispute with the MTA’s principal insurer over the terms of the master policies for Workers’ Compensation and General Liability remains unresolved.
The large-magnitude losses and the unresolved litigation thus create a challenge in marketing and securing insurance for a new MTA construction insurance program. Bifurcating the contract allows the selected broker to market the new program to insurance carriers and determine what insurance is available at what cost. Upon review of availability, price and other terms of the insurance products, the selected broker will advise MTA as to whether or not it can secure coverage and execute a new program according to specifications. If no insurers are interested in the new program, the contract ends at that time and the MTA does not incur charges for program administration fees that would then be unnecessary. The total cost of marketing the program
(Phase 1) is $65,225.
Insurance market conditions
In the past 18 months, both the price and availability of commercial insurance have changed unfavorably. Prior to the 9/11/2001 attacks, insurers began feeling the effects of declining stock performance on their earnings. With the sharp drop-off of institutional investment income, insurers began compensating by increasing premiums and more carefully selecting risks. The attacks of 2001 aggravated the situation by severely impacting global insurance capacity at the highest levels of coverage.
Thus, past claim performance notwithstanding, the MTA’s broker faces the difficult task of requesting high levels of coverage to a marketplace with restricted capacity and sharply increased premiums. It is possible that some insurer or insurers will offer coverage for the MTA, but at a cost that exceeds having each contractor on the various transit corridor projects procure its own insurance coverages.
If conditions of availability, price and other terms of the insurance products are feasible and
MTA elects to go forward with a Rolling Wrap-Up Insurance Program, the selected broker will continue on to Phase 2, the implementation and administration of the Rolling Wrap-Up Insurance
The funding of $400,000 for this service is included in the FY03 cost center 0532, Non-
Departmental Risk Management Construction, projects 800088, East Side LRT, 800111 Mid-
City BRT and 800112, San Fernando Valley BRT. Since this is a multi-year contract, the cost center manager and Executive Officer will be accountable for budgeting the cost in future years, including any option exercised.
CONSTRUCTION INSURANCE BROKERAGE SERVICES 2
Consideration was given to having each prime contractor for the various projects procure its own insurance. A single insurance program, or wrap-up, offers administrative and financial advantages over having separate insurance for each contractor and/or project.
On an administrative basis, because of the scale of these projects, which involve MTA as the principal, one prime and many subcontractors, problems with gaps or overlaps in coverage occur, as well as cross-claims between different contractors on the same job. Creating a single insurance program allows the MTA to select and implement appropriate coverages with no overlap or gaps, and eliminates cross-claims between program participants. Of note, safety programs can also be better coordinated with the principal and a single broker jointly administering the insurance program.
On a financial basis, having each contractor procure its own separate policies with relatively low limits creates an inefficiency in procuring the insurance, as well as not being able to take advantage of consolidated purchasing power. By centralizing the program under MTA’s direction, and purchasing a single set of comprehensive, high-limit policies, substantial premium savings can be achieved over the life of each project.
A. Procurement Summary
Prepared by: Leo Costantino, Risk Financing Manager
CONSTRUCTION INSURANCE BROKERAGE SERVICES 3
Michael A. Koss
Risk Management & Safety
Chief Executive Officer
CONSTRUCTION INSURANCE BROKERAGE SERVICES 4
BOARD REPORT ATTACHMENT A
CONSTRUCTION INSURANCE BROKERAGE SERVICES
Contract Number: PS-0532-1235
Recommended Vendor: Aon Risk Services, Incorporated
3. Cost/Price Analysis Information:
B. Details of Significant Variances: None, see Attachment A-1D
Contract Type: Firm Fixed Price
A. Issued: June 6, 2002
B. Advertised: June 13, 2002
C. Pre-proposal Conference: June 24, 2002
D. Proposals Due: July 12, 2002
E. Pre-Qualification Completed: July 12, 2002
F. Conflict of Interest Form Submitted to Ethics: August 20, 2002
Small Business Participation:
A. Bid/Proposal Goal:
29% DBE commitment
Date Small Business Evaluation Completed:
August 19, 2002
B. Small Business Commitment: 29.55% DBE Goal Details are in Attachment A-2
Invitation for Bid/Request for Proposal Data:
Bids/Proposals Picked up:
A. Bidders/Proposers Names: Bid/Proposal Amount: Best and Final Offer
Aon Risk Services, Incorporated
Marsh Risk & Insurance Services
Willis Risk & Insurance Services $1,292,480
B. Evaluation Methodology: Weighted Guidelines, Details are in Attachment A-1.C
A. Protest Period End Date: October 22, 2002
B. Protest Receipt Date: TBD
C. Disposition of Protest Date: TBD
CONSTRUCTION INSURANCE BROKERAGE SERVICES 5
BOARD REPORT ATTACHMENT A1
CONSTRUCTION INSURANCE BROKERAGE SERVICES
A. Background on Contractor
Aon Risk Services, Incorporated, is located in Los Angeles, California. Aon was formed in 1982 through the merger of Ryan Insurance Group and Combined International Corporation. Aon designs, markets and implements owner controlled insurance programs (OCIP) for the past eight years. Aon provides risk management insurance services and consulting solutions for commercial and industrial enterprises, financial institutions, insurance organizations, municipalities and individuals. Aon is currently involved in a Wrap-Up Program with New York
City MTA and is the current operations insurance broker for Los Angeles County MTA. They have provided satisfactory performance on the LACMTA contract.
Aon currently does business with the following transit agencies:
City of Los Angeles
Santa Clara Valley Transit Authority
Port of Oakland
Port of Seattle
Port of New York City
B. Procurement Background
This is a competitive negotiated procurement for an insurance broker using the explicit factors evaluation methodology.
The Department of Diversity and Economic Opportunity (DEOD) recommended a 29%
Disadvantaged Business Enterprise (DBE) goal for this procurement.
C. Evaluation of Proposals
In accordance with MTA Procurement Policies and Procedures, the Source Selection Committee
(SSC) conducted a comprehensive technical evaluation of the proposals and using the explicit factors identified in the Request for Proposal. The SSC ranked the proposers based on technical criteria and price. All proposers net the minimum qualifications and Aon received the highest scoring based on price and technical factors.
D. Cost/Price Analysis Explanation
The recommended price of $1,079,819 has been determined to be fair and reasonable based upon adequate price competition.
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BOARD REPORT ATTACHMENT A-2
LIST OF PRIME CONTRACTORS AND SUBCONTRACTORS
FOR RESPONSIVE AND RESPONSIBLE PROPOSERS
CONSTRUCTION INSURANCE BROKERAGE SERVICES
PRIME CONTRACTOR – Aon Risk Services, Inc.
Small Business Commitment Other Subcontractors
Cumbre, Incorporated 29.55 none
Total Commitment 29.55%
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